Dealing With Debt For Students
Going to university isn’t cheap. Ask any university student and they’ll probably spend hours complaining about the high cost of education and student loans. Apart from tuition fees, students in university have to worry about other payments such as housing bills, credit card loans, and daily expenses.
Over the years, the money you spend adds up and most people don’t realize how much money they owe until they get a letter from the bank. However, it’s also important to remember that not all debt is bad. In fact, almost everyone relies on credit to get a start in life. The trick is to know when to borrow money and how to manage your finances. Lucky for you, we’ve come up with tips and tricks on how you can go about managing your debt while in university. If you want to know more about debt management, continue reading to find out more!
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What is debt?
First and foremost, what is debt and why do most students shudder at the mention of it? Debt is essentially a sum of money you’ve borrowed and have to repay. One misconception that most people have is that their debt is equal to the amount of money they’ve borrowed. But in actual fact, your debt is often higher. This is because banks and other financial institutions charge interest fees. The longer you take to repay the amount you borrowed, the more interest, you have to pay, and the higher your debt.
Another term you should be familiar with is credit. You probably know what a credit card is.
When you pay for something using a credit card, you aren’t using money that you have from your checking account. Instead, you borrow money from your credit card issuer which, for most people, is their bank. In other words, credit basically refers to a customer’s ability to purchase something and make payment for it at a future date. Apart from credit cards, you may use credit when paying for bills, overdrafts, or getting loans. Most people accumulate debt when they start using credit to pay for their purchases.
Remember, there’s nothing wrong with borrowing money. However, the trouble comes when you over-borrow. Borrowing beyond your means, or missing out on repayments are some ways in which you can lose control over your finances and accumulate bad debt. Your credit score may also take a hit when you have large amounts of debt and fail to repay them on time.
Poor credit scores and large amounts of debt can seriously impact one’s life. With banks and financial institutions less willing to lend you money, you may find it difficult to obtain loans which many people depend on to pay for their houses, utilities, and education.
Are you in debt if you have a Student Loan?
For most students, student loans are seen as debt as you’re using money borrowed from the government to finance your education. However, you shouldn’t consider yourself ‘in debt’ if you’ve taken out a student loan.
It’s understandable to worry about having to repay thousands, sometimes tens of thousands, when you graduate. But, unlike other loans given out by banks, student loans are different. You have to start making repayments once you graduate from university and start earning income. However, the amount you’re required to pay back each month varies depending on how much you earn. For example, if there happens to be a month where you earn less, the amount you need to repay for your student loan will decrease accordingly. When you start earning more, your repayments will increase. What’s more, repayments for student loans are often done through your employer so you don’t have to worry about missing out on anything.
Though you eventually have to pay back your student loans, there’s also a likely chance that your loans will get written off even before you repay the full amount. Most university graduates get their student loans written off anywhere between 25 to 30 years after they begin repayment. However, this time period will vary according to the student loan plan you have.
One of the largest fields students go into debt over is the medical field. There are several medical debt consolidation programs out there you can choose from.
Good and Bad Debt Explained
So we’ve mentioned previously, not all debt is bad. Good debt comes from the credit that has long term benefits. For example, student loans are used to finance your education, enhance your skill-set, and increase your employability. You’re better off taking out a student loan and getting a degree than not borrowing and having no academic qualifications.
In contrast, bad debt leaves you worse off in the long run. Spending beyond your means to make luxury purchases, paying for a holiday, or buying something non-essential: these are all bad uses of credit. Furthermore, most people who habitually buy non-essential items or make impulse purchases don’t plan on how they’re going to repay the amount they’ve borrowed. When this happens, keeping up with repayments becomes a struggle and that’s when you start to accumulate bad debt.
To decide whether it’s a good decision to use credit, ask yourself these questions:
- Is this a want or a need?
- Do I need it immediately or can I wait to save up before buying it?
- Given my current income, will I be able to pay for the monthly repayments?
If your answer to all these questions is ‘yes’, you’re probably using credit for the right reasons and don’t have to worry about bad debt.
However, If you happen to answer ‘no’ or ‘I’m not sure’ to any of these questions, you should avoid borrowing. Furthermore, if you aren’t great with tracking your expenses, using credit may not be the smartest choice. Though saving money takes a longer time, you don’t have to worry about spending more than you can afford and accumulating bad debt.
Conclusion
Learning how to manage one’s finances is an important skill and something that will serve you well in the future. If you start forming good spending habits, chances are you don’t have to worry about accumulating bad debt in the future which can get you in trouble with a lawyer for collections. Keeping track of how much you spend, borrow and earn is also a good way of staying on top of your finances. It takes some effort, but it’ll definitely pay off.